Why Are You Not Getting Fiber?

2

Calix Background

Focus on ACCESS INNOVATION

Headquarters in Petaluma, CA

Development facilities in Minneapolis and Boston

Traded on the NYSE (CALX)

Investing $45 million annually in R&D

FTTH and DSL product portfolio

500+ North American customers

Customers: ILECs, CLECs, IOCs, MUNIs, MSOs, PTTs

North American focus: U.S., Canada & Caribbean

Both GPON and Symmetrical GE FTTH

Focus on rural and smaller size communities

Over 40% of US rural IOCs deploy Calix

Muni deployments accelerating

Muni deployments in 18 cities in 12 states

5 new projects so far in 2010

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The Bandwidth Challenge

Proliferation of consumer devices, HDTV and internet based services will continue to drive consumer bandwidth demand

Home networks operating at less than100 Mbps today will migrate to Gigabit Ethernet (GE)

Average access bandwidths will grow to 100 Mbps and beyond

The National Broadband Plan goal: 100 million homes with 100 Mbps

100 million homes is 76% of all US housing units

Aggregation Point

WiFi

Video and Internet Based Services

Driving Broadband Bandwidth

Access Network

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Fiber Offers The Best Solution

Fiber is the only solution deployable today that will meet consumer demand ten years from now

Fiber is the only technology capable of supporting100 Mbps to GE bandwidths, free of distance limitations

Fiber can support asymmetrical needs of today with increasing symmetrical needs of the future

Fiber standards-both PON and Active Ethernet-address the needs of consumer demand today and in the future

Access Network

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U.S. FTTH Subscribers

Number of

Entities

Number of

Connections

9/2010

RBOC (Verizon) 3 5036K

ILECs 475 859K

CLEC ?? 225K

Municipality 88 182K

Developer ?? 179K

MSO/Cable

Operator

<30 60K

Source: RVA 2010 Forecast

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U.S. FTTH Cumulative Forecast

0

1000

2000

3000

4000

5000

6000

7000

8000

2009 2010 2011 2012 2013 2014

RBOC

ILEC

Muni

CLEC

Developer

Cable/MSO

Source: RVA 2010 Forecast

10% of US housing units will be served by fiber by 2014,

20% will have it available

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Non-RBOC U.S. FTTH Cumulative Forecast

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2009 2010 2011 2012 2013 2014

ILEC

Muni

CLEC

Developer

Cable/MSO

Source: RVA 2010 Forecast

A net add of only 200,000 municipal FTTH subscribers in 4 years

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Municipal FTTH Market Status

Out of 34,000 municipalities in the U.S

88 cities offer communications services over FTTH

Over 350 offer some form of telecom service

2,000 own their electric utility

Municipal electrics account for most of the FTTH Muni projects

Municipal utilities serve 9 million housing units in states that do not prohibit or discourage Muni’s from offering broadband services

Why has the market been slow to develop?

State restrictions, legal and political opposition

Many cities have waited-hoping incumbents will build out

Difficulty making the business case

Lack of operational expertise; knowledge base

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States with Muni Restrictions

Very restrictive

Nebraska 98%

Washington* 50%

Utah* 20%

Texas 16%

S. Carolina 13%

Missouri 13%

Arkansas 11%

Pennsylvania 1%

Some restrictions

Tennessee* 69%

Minnesota* 14%

Florida 13%

Wisconsin* 9%

Virginia 5%

Nevada 2%

14 states have placed some form of restrictions

on municipalities offering communication services;

in some states this has brought deployments to a halt,

in other states it has merely presented obstacles

*States in bold have multiple FTTH muni deployments

Percent of residents served by publicly owned power

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Incremental Revenue Potential

Incumbents may have difficulty justifying FTTH based on incremental revenue

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Backbone / Central Office Passing Homes Serving Homes

FTTH Costs: Passing & Serving Homes

Sources: CSMG, Hiawatha Broadband, Jaguar, Finley Engineering

Factors that increase the FTTH investment required include: lower household density, greater linear

distance between households, fewer homes per CO, higher service uptake, more buried plant

Passive Optical Splitters

Central Office (CO)

Data

Ethernet

Switch

Internet

OLT

EDFA

IT / OSS / BSS

Drop

Set-top Box

Phone

ONT Data

RF Video Only

Service Provider Cost to Pass

Per HU

Incremental

Cost per HU

HU Density

Verizon $700 $650 >100’s /sq. mile

Jaguar (Rural Minnesota) $1438 $693 28.53 /sq. mile

Finley Engineering Case

Studies (w/Hiawatha BB)

$1871 $750 14.33 /route mile

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Verizon’s Cost Per Home Served

30% Take Rate 50% Take Rate 100% Take Rate

Cost per Home

Passed $700 $700 $700

Incremental

Cost per Home

Served $650 $650 $650

Actual Cost per

Home Served $2983 $2050 $1350

Actual cost per home served at a 30% take rate for 1000 homes is $2,983

Verizon’s average revenue per year/per FiOS sub is over $1500 per year

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Rural FTTH Cost Per Home Passed

30% Take Rate 50% Take Rate 100% Take Rate

Cost per Home

Passed $1655 $1655 $1655

Incremental

Cost per Home

Served $722 $722 $722

Actual Cost per

Home Served $6238 $4032 $2377

Costs based on average of nine FTTH projects in the midwest. Verizon’s

costs per home are less, but take rates are less. Higher costs in rural

areas are partly offset by rural operators’ higher penetration rates

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Within rural towns Hiawatha

Broadband and Jaguar

achieve costs close to those of

Verizon because densities in

towns are equivalent to Verizon’s

By serving towns and the

surrounding rural areas, Hiawatha

and Jaguar are able to make

their business case work

y = -467.24Ln(x) + 3658.9

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

1 10 100 1,000 10,000

HHs per Square Mile

FT

TH

Co

st

To

Pa

ss

pe

r H

H

Cost to Deploy Fiber

• We observe a 5X difference in FTTH costs per HH passed over

the range of HH densities with publicly reported data

• This range of densities represents a wide spectrum of HH

densities from rural (5 HHs per sq. mile) to urban (1,375 HHs per

sq. mile)

Source: FCC Filings, SNL Kagan, CSMG Analysis

Hiawatha

Broadband (MN –

6 urban markets)

Verizon

FiOS

Footprint

2009 FTTH Costs to Pass per HH

Jaguar Comm.

Blooming Prairie City

MN

Jaguar Comm.

All markets

average

Jaguar Comm.

Somerset MN

Jaguar Comm.

Blooming

Prairie MN

Jaguar Comm.

Summit MN

Jaguar Comm.

Aurora MN

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U.S. Population is Clustered

Source: US Census Bureau

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Housing is Concentrated

County Name

County HH

Density

Burwell, NE Lancaster, NH Jamestown, TN

Garfield County, Nebraska

1.4 HHs per sq. mi.

Coos County, New Hampshire

7.8 HHs per sq. mi.

Fentress County, Tennessee

13.4 HHs per sq. mi.

Example

Locality

Example Rural Localities & Household Density

• Broad classifications of locality type (rural vs. urban) and

density metrics may be poor indicators of the investment

required to deploy FTTH to a community, as population and

households can exhibit differing levels of clustering

Source: Google Earth, US Census Bureau, CSMG Analysis

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Jaguar Cost Per Home Passed

Housing Units per Square Mile

$1438

Over half of the housing units are located in town, lowering the average

cost to service the area by over $664 per home (28 HU per sq. mile=$2102)

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Calix Municipal Fiber Projects

City/Town Year Awarded Comments

Kutztown, PA 2002 One of the first in the United States, now upgrading to

GPON; Pennsylvania then passed prohibition law

Reedsburg, WI 2003 Highly successful triple play operator

Windom, MN 2004 Just won Round 1 stimulus for expansion to

surrounding communities

Crosslake, MN 2005

Burlington, VT 2006 Recent financial problems at city, despite generally

successful deployment

Brookings, SD 2006 Municipal owned telephone company

Powell, WY 2007 Public-private partnership; city recently purchased

Spencer, IA 2007 Started as Muni owned cable operator

Lenox, IA 2008 Started as Muni owned cable operator

LaGrange, GA 2008 Business services only

Bristol, VA 2008 Just won Round 2 stimulus for expansion

Barnesville, MN 2008 Business services only

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Calix Municipal Fiber Projects

City Name Year Awarded Comments

Monticello, MN 2009 Deployed after bitter legal battle

Barbourville, KY 2010 Started as Muni owned cable operator

Russelville, KY 2010

Highland, IL 2010

Harlan, IA 2010 Started as Muni owned cable operator

Concord, MA 2010 Smart Grid only deployment to start

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Lessons Learned from FTTH

Don’t do it alone

Partner with a nearby operator

Hire people that have been there and done it before

Multiple service bundles are key

FTTH costs require per sub revenues over $120 per month

Focus on penetration rate

Secrets to success

Community involvement

Promoting localness

Serving businesses and community anchor institutions

Huge emphasis on marketing

Superior customer service

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Your Role As The Change Agent

Focus on economic growth

Fiber is a development tool

Fiber towns grow faster

Find a community leader

One strong public official at the core of every fiber build

Your job: Inform the champion

Can you pass the fiber test?

What is fiber?

Benefit to the economy

Regulatory barriers?

Understand the opposition

Organize community support

Thank You